Ashley Elsner of Artery Pay talks us through product development and how to avoid any surprises in the US cannabis industry.
Finding reliable banking and payments in the US cannabis industry is extremely challenging. On the one hand, cannabis has been legalised in a number of states and so is a legitimate business. On the other hand, access to financial services is locked up with US banks that are disinterested in supporting the cannabis space, forcing these legitimate businesses to either use any way possible to access the US financial system or be forced to operate entirely in cash, creating outsized physical risks to the business, themselves, their employees and patients and the communities in which they operate.
Many financial ‘solutions’ have surfaced for the US cannabis industry. Because the teams developing these products are focused on neat-looking consumer-facing tech and not on the operations of delivering financial products, which is both highly government regulated and subject to substantial delays from vetting by traditional banks and card networks who own the US financial system access, what access they provide has been expensive and many times illegal in ways that non-financial businesses could not possibly anticipate.
So, if you are trying to operate legitimately in the US, what can your business do to make sure that you have reliable, affordable financial services that can scale with your business and will not land you in prison for something you didn’t realise you were doing?
Vet the backgrounds of the teams who are providing the service
It is critically important to vet the backgrounds of the team providing you financial services. Financial products of all types are different from other services because they are heavily regulated and access to financial systems take time to develop through vetting by traditional providers who must approve the products before they will provide access to the US financial system. You want a team who knows how to navigate these waters because they will be able to provide sustainable access.
Financial institution operations are dictated by law and regulation, which means, highly specialised lawyers are the ones who run the operations of financial institutions. You are looking for teams with these types of lawyers, who are experts in financial institution operations from working in regulation and the back office of actual financial institutions. You want developers who have developed systems for banks and payment providers, and not ‘fail fast’ tech entrepreneurs that frequently don’t have the patience to see long term projects through.
You want strategy based on partnering with traditional financial providers. There should have been years of strategic discussions and partner vetting prior to bringing the product to market. The only way to know that those back office partner discussions happened is by having a team that knows its way around the financial industry’s operating side and understands the timelines for creating those relationships. In the end, what you need is a team that isn’t about sales hype or workarounds, but is about delivering on what they say they can do with the accompanying financial industry operations expertise to actually get it done the right way, so the services will be sustainable and reliable. Otherwise, the ‘solution’ is unlikely to be around in a year.
Try out the product
You want a working product, not promises to build a product. If a team approaches you saying they have a solution, that solution should actually exist for you to test out. A personal ‘pet peeve’ of mine is when software developers come in and try to sell a product that they haven’t built. Essentially, they are really drumming up development business and don’t have the ability to solve the critical problems that make providing services in the space difficult.
They aren’t aware of the challenges and are just there to build a slick interface, which is also important, but in the end you want a product that gets the job done and makes your life easier and not more difficult. If it is not your focus, supervising developers to create a product for you is hard; so, make sure there is an actual product to test before you buy it.
Make sure the product is easy to get and use for you and your customers
Take a few minutes and think about how you and your customers will use the product. On the business owner’s side, the product should do what you need it to. It should allow you to transact easily with whomever you are doing business with, whether it’s customers or vendors. You should be able to pay, receive payments, and make transfers as needed for your business. The product should integrate easily into systems you already use. It shouldn’t require additional equipment or setup on your part. If it does, the team providing the product should handle that for you or in conjunction with your team. There should not be added costs or systems to learn. It should be intuitive, not require a lot of training, and it should work. This is all about having products that help you run your business smoothly.
You also want to understand what limits the system has for supporting your business. For example, are there maximum and minimum transaction sizes? If so, does that range fit the average transaction size for the products you offer? Is there a minimum volume of transactions that you have to have or pay higher fees? If you have a store and sell online or in an app, does a single product support all of those payment points? If you sell at festivals, markets, trade shows, or at pop up shops, can the product support those payment points too? Can the product scale with your business?
For your customers, the product should be easy to get and use. It should be intuitive, not require a lot of training, and it should work. It should be a system that they are reasonably familiar with even if they don’t recognise the brand yet. It should not require a myriad of hoops for them to jump through. They should be able to download and sign up to use the product in about a minute. They should be able to start using the product as soon as sign up is completed and confirmations have occurred. They should not have to wait. That waiting time is frustration for them and lost sales for you.
Clarify the total costs of using a product
Many financial product providers list a particular price with an asterisk (*) or footnote (1). Read the fine print about the pricing because typically the listed price* cues you to hidden fine print on the actual cost of the product which has substantial added costs through schedules of fees. If you read the fee schedule, you may find that the all in costs are 2%-6% higher than the list price. A few examples of additional charges you may encounter are account fees, interchange fees, minimum volume fees, and chargeback penalties. You want to compare apples to apples so build out that all-in cost in a spreadsheet for each product you’re considering and compare them so you don’t end up surprised by higher cost systems that claimed to be cheaper but get you in the fine print.
Read and understand your contract before you sign it
I always advise everyone I know to read your contracts and understand all of the terms in those contracts before you sign them. What you sign in that contract is what you are agreeing to, no matter what other discussions you may have had in the past. Although it takes time, it’s a small amount of time when you understand that your contracts can dictate your operations. Contracts can sneak in additional fees as discussed above.
They can restrict who you do business with. They can assign obligation and cost to your business for risks that are not part of your business. They can penalise you for ending the business relationship prior to the end of the contract term and can auto-renew your services without giving you the opportunity to re-agree or renegotiate. If you don’t read the contract before signing it, under US corporate law, you still agreed to all of the terms in it. You had an opportunity to read it, object to it, and negotiate it. If you didn’t take that opportunity, the contract is still enforceable against you by law.
I recommend reading and understanding the contracts yourself. It gets easier the more you do it. However, if you are not comfortable reading contracts, hire a US corporate lawyer. The up-front costs of having them review a contract for you and explain how the terms affect your business operations are exponentially less than having to go back and change your business operations to comply with the contract or face penalties for breaking it.
Ashley Elsner is the CEO and Founder of Artery Pay and holds a J.D. and M.B.A. in Finance from Northwestern University and a BA in Political Science from Yale College.
This article will appear in Health Europa Quarterly Issue 11, which is available to read now.